Bourses to pick up cues from earnings, macro data

This week, domestic equities will pick up cues from April-June quarter earnings season which just kicked off last Thursday with TCS. We expect the momentum to continue, supported by the expectation of healthy quarterly results, hope of a rate cut, and a pre-budget rally. The IT sector is expected to be in focus as other sectoral majors will come out with results. On Monday, markets will react to India's inflation data and US PPI data, which got released over the weekend.

Key results next week include Jio Financial, HDFC Life, Asian Paints, LTI Mindtree, Infosys, Havells, Wipro, JSW Steel, Paytm, etc. Also globally, investors will take cues from China’s Q2 GDP numbers, United States Core Retail Sales data, and European Central Bank interest rate decisions.

Nifty, after consolidating throughout the week, witnessed a smart rally on Friday, led by buying in IT stocks. The index touched a new high of 24,592, ending the week with gains of 178 points (+0.7 per cent) at 24,502. Broader markets however, ended flat. Sectorally it was a mixed bag with IT and FMCG being the biggest gainers – up 3.5 per cent each. PSU Banks, Realty and Metals each lost more than 2 per cent.

Domestic market was trading sideways throughout the week awaiting fresh triggers, start of Q1 earnings season and release of inflation data. Earnings started with the announcement of better than expected numbers from TCS which triggered renewed buying in the IT sector and gave fresh momentum to the market.

Pharma sector was in focus and is likely to remain so on back of comfortable valuations and expectation of healthy earning growth. Paint stocks were in momentum and among the gainers after media reports suggested that some of the companies had hiked prices. Auto sector came under pressure after both Mahindra and Tata Motors slashed prices for select models in the SUV segment.

Overall we expect Nifty earnings to grow 4 per cent year-on-year for Q1FY25. Excluding Oil Marketing companies, earnings are expected to grow by 8 per cent. Margin tailwinds are likely to ebb due to  a high base. The overall earnings growth is anticipated to be driven, once again, by domestic cyclicals such as Auto and BFSI, with improved contributions from Healthcare and Metals. The Real Estate and Retail sectors would report strong growth, while Consumers and Technology are anticipated to post moderate growth YoY.

On the global front, US inflation came in lower than expected, resulting in a new rally in midcap and smallcap stocks while large caps saw profit booking. This, along with dovish commentary from the Federal Reserve has led to hopes of rate cut as early as September.

Overall strength is seen in the market as every dip is being bought, supported by strong domestic flows and aided by FIIs buying in the last few days.

(The author is head of Retail Research, Motilal Oswal Financial Services Ltd)